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The Global Economy Faces Elusive Real Growth

Daily Analysis - 02/03/2015

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With the currency war reaching new heights, Central Banks are becoming increasingly aggressive in their loose monetary policy measures as country’s attempt to competitive devalue their respective currencies. Risks to growth are skewed to the downside as the momentum of goods moving through the world slows. Deflation and lower commodity prices have begun impacting broader swathes of the global economy.

Last Week in Brief

Global growth is seeing increased risks to the downside as evidenced by the latest slew of economic data from America, Europe, and Asia. The latest GDP figures released from the United States point to weaker expansion, with the latest quarterly figures revised to 2.2% from 5.0%. Across the Pacific, Japan continues to see a mixed outlook as industrial production and manufacturing benefit from a weaker Yen, helping the export economy. Domestically, the nation is suffering as consumer spending plunges more than forecast and inflation targeting means that real GDP growth is actually negative. Chinese markets returned from the Lunar New Holiday to slightly stronger manufacturing data, but the latest interest rate cuts to the lending and deposit rates indicate that the Central Bank is worried about further headwinds to growth. European markets were dominated by news flow related to the situation unfolding in Greece. Although the latest deal extension was approved by Euro Area governments, heightened deposit outflows and risks of a default to upcoming IMF repayments are causing concern that sent the Euro tumbling against peers late in the week.

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The Week Ahead

The week ahead is bursting with Central Bank activities as the Bank of England, European Central Bank, and Bank of Canada set monetary policy conditions and discuss the outlook. BoE Governor Mark Carney, ECB President Mario Draghi, and Fed Chair Janet Yellen will be giving policy speeches this week that will likely discuss interest rates, inflation, and headline risks to the outlook. GDP data is due from Canada and Switzerland, with estimates that both will encounter weaker figures than the prior period. Canada is pressured by falling energy prices as the Swiss deal with a weaker export economy on the back of a strengthening Franc. The big event of the week is US payroll data to be released on Friday. It is expected that unemployment will drop to 5.6% with nonfarm payrolls forecast to grow by 240,000 jobs in the latest reporting period.

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